Do I risk losing my home while providing a family guarantee?

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Don Juan
Posts: 45
Joined: Wed Jul 03, 2013 2:10 pm

Do I risk losing my home while providing a family guarantee?

Post by Don Juan »

Hello home loan experts!

My daughter has recently finished college and has started working for a pharmaceutical company in Perth. Her annual salary is more than $50,000 and she was saying that she wants to get a place of her own. She is currently living with us at our house on Murray Street at the moment.

She does not have much in savings and was telling me the other day that she can get a home loan without a deposit if I provide a family guarantee for the loan. However, I am not sure how this works. Do I risk losing my home while providing a family guarantee? Any info regarding this will be greatly appreciated.

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Otto Dargan
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Re: Do I risk losing my home while providing a family guaran

Post by Otto Dargan »

Hi and welcome to the forums Don Juan,

Many people who are buying a home, especially first home buyers, receive some sort of help from their parents. One of the ways for parents to help their children is by providing a guarantee for their home loan. Also known as a guarantor loan, it makes it possible to borrow 100% of the property value.

A guarantor loan is a type of loan where the property of the guarantor, usually parents or close relatives, is used as security against the property which is being purchased. Since the lenders have extra security on the loan, it is possible to borrow even up to 105% so that the loan covers any stamp duties and other charges levied by the government, as well as the costs of conveyancing.

There are several other benefits of getting a guarantor loan such as:
  • No Lenders Mortgage Insurance (LMI) premium required: Typically, home buyers need to pay LMI premium as extra protection to the lender if they are borrowing more than 80% of the property value. However, while taking out a guarantor loan, it is possible to avoid paying LMI.
  • Debt consolidation: Some lenders may even be willing to lend up to 110% of the property value if the borrower is consolidating any other minor debts with the purchase.
  • Discounted interest rates: Borrowers may be able to get a reduced rate of interest on the loan in a guarantor loan.
  • Limited guarantee options: It will be the liability of the guarantor if a borrower is unable to repay your home loan. It can be a concern for the guarantors. However, some lenders allow guarantors to limit the size of the guarantee. This means that the guarantors will have a limited liability for the loan.
Cheers,
Otto
Otto Dargan
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P | 1300 889 743
Home Loan Experts

Don Juan
Posts: 45
Joined: Wed Jul 03, 2013 2:10 pm

Re: Do I risk losing my home while providing a family guaran

Post by Don Juan »

Well, since the loan becomes my liability then there is indeed a possibility of my losing the house if my daughter fails to make the repayments. I am not really ready for other commitments since it has not been long since I paid off my mortgage. I think having a limited liability will help my daughter and also alleviate some of my concerns. Could you tell me more about limited guarantee?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
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Re: Do I risk losing my home while providing a family guaran

Post by Otto Dargan »

Hi Don Juan,

Being a guarantor for a home loan is a big commitment indeed. Therefore, lenders allow a guarantor to limit the size of the guarantee. This means that the guarantors are not liable for the entire loan amount but only a portion of it. The size of the limited guarantee is calculated is given by the following formula:
Limited Guarantee = (Loan Amount – (0.8 * Purchase Price)) / 0.75

Suppose your daughter is planning to buy a house worth $500,000. If she needs to borrow $550,000 for that in order to cover other purchase costs as well then the limited guarantee would be calculated as:

($550,000 – (0.8 * $500,000)) / 0.75
= ($550,000 – $400,000) / 0.75
= $200,000

This means that you would have a limited liability for an amount up to $200,000 for the loan of $550,000. You can use the Guarantor Loan Calculator to figure out the details of the loan and to get some tips for the loan application.

If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Don Juan
Posts: 45
Joined: Wed Jul 03, 2013 2:10 pm

Re: Do I risk losing my home while providing a family guaran

Post by Don Juan »

Hi Otto, thanks for the explanation. I will discuss this with my family and get back to you.

afish
Posts: 63
Joined: Mon Jun 15, 2009 4:46 pm

Re: Do I risk losing my home while providing a family guaran

Post by afish »

Hi there!

I approached my bank for the procedures required to get a guarantor loan. However, they said that I will need 5% of the purchase price in genuine savings. I don’t have any savings, and the property prices in my locality are increasing and I am worried that I will have to pay more if I start accumulating savings. Has anyone got any tips for me?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Do I risk losing my home while providing a family guaran

Post by Otto Dargan »

Hi afish,

Different lenders have different policies regarding guarantor loans. Some lenders have the genuine savings requirement, while others may not. It is all about choosing the right lender who may be willing to accommodate all your needs. It is better to consult a mortgage broker who specialises in guarantor loans to find out which lenders do not require genuine savings.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

afish
Posts: 63
Joined: Mon Jun 15, 2009 4:46 pm

Re: Do I risk losing my home while providing a family guaran

Post by afish »

Thanks for the information. I will call you guys next week to discuss my options.

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